Mandatory Health Insurance?

Rhetoric surrounding the healthcare debate in Massachusetts has been largely shaped by plans to extend coverage to the poor. But two of the major initiatives under consideration by the Legislature would also, for the first time, require everyone who is able to afford it to buy private health insurance. Massachusetts would be the first state to impose such a requirement, a shift being hailed by many observers as forcing a new personal responsibility in the national debate over how people should get insurance.

But such a requirement, which would be aimed largely at the 200,000 or so people in the Commonwealth who are young, single, healthy, and without coverage, is setting off resentment among the uninsured.

The opposition to mandatory health insurance tends to be of two types.

1. "It's my money, and if I decide to spend it on something other than health insurance, that's my business."

2. "I shouldn't have to pay for health insurance. Someone else should have to pay for my health insurance."

I support mandatory health insurance because I believe that in the public at large, group (2) outnumbers group (1) by a wide margin. Thus, if we don't have mandatory health insurance, what we will have will not be the libertarian alternative favored by group (1) but the socialist alternative favored by group (2). Also, I think that mandatory catastrophic health insurance could wean people away from the comprehensive insurance that we have today, which encourages overconsumption of health care services.

Did I just say that I think that the majority of people favor socialized health insurance? No. Many people already live with private health insurance, so they are in neither group (1) or group (2). However, it would not surprise me to find that the majority favor socialized health insurance. No matter how many people are in favor of it, they are misguided.

Paul Krugman today gives us the simple answers to simple questions about health economics.I have to admit that while I understand his points I don’t think they point to the conclusion he desires. He points to adverse selection which is [Tracked on November 14, 2005 7:18 AM]

For some people, the catastrophe happens through no fault of their own before birth in their genetic makeup, e.g. diabetics or hemophiliacs who will have to incur a lifelong burden of non-emergency care. Your arguments will not carry much moral weight until you explicitly address that issue.

At some level, most people will agree society has a responsability to cover these types of catastrophes, just like we assist hurricane victims or provide education to poor kids.

It is also in society's best interests to do some kinds of preventive medicine. You can't allow tuberculosis, smallpox or leprosy to come back because some people were too poor to afford vaccinations. You may want to have the government cover flu shots to mitigate potentially disastrous epidemics.

Everyone that can afford it? A decision only the government could make. What if it is affordable from some carrier, but unaffordable from another? What if the criteria used in determining price, determines it is affordable for those who don't need it and unaffordable for those who do? Will we have subsidized policies to collect something from those who can't afford it rather than provide it for free? If the government is dedicated to providing for those can't afford it, will nearly everyone eventually be unable to afford it? Still, it offers more promise than anything else I have heard.

I think discussing comprehensive health insurance versus catastrophic health insurance is giving up half the battle. It is the same as discussing capitalism instead of the market economy.

What we have now, for most of the insured, is subsidized comprehensive third party payment. What we need is catastrophic health insurance. Until the primary debate is about comprehensive versus catastrophic, all extensions of third party payment will lead to a mushrooming of health costs.

If health costs get much higher, as a percentage of income, we are going to see a majority in favor of price controls.

Is there anything today that a state government forces people to purchase (other then government services through taxes)? I can think of nothing else off of the top of my head. On a federal level we are forced to purchase Social Security, but that is a government produced product.

I can also think of no example of a government forcing all citizens to purchase a private good from another citizen. Even food and shelter are optional purchases.

One could argue that car owners are forced to purchase insurance in some states, but that can be avoided by not purchasing a car or using it only on ones own property.

This seems like a expansion of government and abridgement of freedom that should be carefully considered for its broader implications, not just it solving a perceived problem of health insurance.

I see a potential case of tyranny of the majority over the minority. Obviously, I am thinking as a member of group 1, but group 1 should not lose its rights just because it is small. That is the very definition of tyranny.

There's another problem that mandatory isurance addresses: When members of group 1 are unable to pay for care, they automatically become members of group 2. Unless, that is, they're willing to decline needed care in order to uphold their libertarian principles.

Politicians should worry about getting rid of the incredible number of laws, liabilities and regulations already in place.

Ask yourself when you need a refill on a drug why you have to pay a doctor a few hundred dollars for a visit to get the legally needed perscription, then give a pharmacist a huge cut as you legally have to purchase from a pharmacist, and of course your insurance company gets in on the act. Which you pay for in one form or another. Then add in 20% at least at every stage for liability.

The government then of course dramatically limits the supply of pharmacists and doctors, as if just paying the investment in their education wasn't bad enough for treating routine problems.

dcpi makes a trivial observation. 90% or more of people without a car do not "choose" to be that way. Mandatory health insurance is not all that different from mandatory car insurance, and could be favored for the same reasons.

I used to live in Washington (state, for you East Coasters). There, you could avoid mandatory car insurance if you posted a CD or other liquid equivalent for something in the neighborhood of $60,000 to cover your potential liabilities. Hardly anyone did of course! But it was there if you REALLY objected to mandatory insurance.

If the State of Florida (my nominal residence) enacted mandatory health insurance, I'd want to be sure that there was some loophole or coverage for people like me who spend 80% of their time outside the US. But I'm way way in the minority, I doubt my case would get much attention.

My observation is not over the merits of health insurance per se, but over whether we want the government to be making decisions about what we must and must not purchase. This is not trivial item. As we all saw with the Kelo decision, precedent is an important thing, and we should think carefully about what precendents we allow and encourage.

There are other ways to ensure that people are taken care of than have the government dictate one solution for us all.

I also foresee other, more technical problems with requiring that we purchase insurance. What, for example, is the punsishment for those who do not purchase the insurance? Prison? A fine? Withholding of treatment? Making the person pay the bills they incur? What if they then refuse to pay, or what if they can't pay. Again. Prison?

That is what happens when you make something a law. You must be prepared to enforce laws with the full power of the state or the laws become meaningless. A meaningless law ends up being as bad as no law at all for it undermines all law and authority of the state.

We should think very carefully when we turn to law to dictate solutions to problems (and behavior) for no other reason than that we think we know better than our neighbor.

BTW. Lack of health insurance is not such a problem for everyone. I have gone through periods without it because I could not afford it. It was a choice. My life is not only about living as long as possible, it is also about living the life that I choose for myself with the goals that I choose for myself. Not your goals.

The votes in California overwhelmingly against socialized pharmaceuticals and re-regulation of electric utilities ought to give you some hope that a majority would not be in favor of socialized medicine.

Arnold, what is the externality caused by a young, healthy uninsured person, especially if s/he has a ton of equity in his/her home that can be accessed quickly through refi or sale to pay for the most astronomical medical bills?

What happened to "Under the welfare state, government usurps the role of the family in education, health care, and saving for retirement" and "Government should leave children behind and let seniors face the cost of prescription drugs"?

Should I pay for my own private policeman as well? It seems society values my personal well being enough to ration some portion of protection. The problem with socialized health care is the lack of tolerance for rationing.

Several readers have asked me a good question: we rely on free markets to deliver most goods and services, so why shouldn't we do the same thing for health care? Some correspondents were belligerent, others honestly curious. Either way, they deserve an answer.

It comes down to three things: risk, selection and social justice.

First, about risk: in any given year, a small fraction of the population accounts for the bulk of medical expenses. In 2002 a mere 5 percent of Americans incurred almost half of U.S. medical costs. If you find yourself one of the unlucky 5 percent, your medical expenses will be crushing, unless you're very wealthy - or you have good insurance.

But good insurance is hard to come by, because private markets for health insurance suffer from a severe case of the economic problem known as "adverse selection," in which bad risks drive out good.

To understand adverse selection, imagine what would happen if there were only one health insurance company, and everyone was required to buy the same insurance policy. In that case, the insurance company could charge a price reflecting the medical costs of the average American, plus a small extra charge for administrative expenses.

But in the real insurance market, a company that offered such a policy to anyone who wanted it would lose money hand over fist. Healthy people, who don't expect to face high medical bills, would go elsewhere, or go without insurance. Meanwhile, those who bought the policy would be a self-selected group of people likely to have high medical costs. And if the company responded to this selection bias by charging a higher price for insurance, it would drive away even more healthy people.

That's why insurance companies don't offer a standard health insurance policy, available to anyone willing to buy it. Instead, they devote a lot of effort and money to screening applicants, selling insurance only to those considered unlikely to have high costs, while rejecting those with pre-existing conditions or other indicators of high future expenses.

This screening process is the main reason private health insurers spend a much higher share of their revenue on administrative costs than do government insurance programs like Medicare, which doesn't try to screen anyone out. That is, private insurance companies spend large sums not on providing medical care, but on denying insurance to those who need it most.

What happens to those denied coverage? Citizens of advanced countries - the United States included - don't believe that their fellow citizens should be denied essential health care because they can't afford it. And this belief in social justice gets translated into action, however imperfectly. Some of those unable to get private health insurance are covered by Medicaid. Others receive "uncompensated" treatment, which ends up being paid for either by the government or by higher medical bills for the insured. So we have a huge private health care bureaucracy whose main purpose is, in effect, to pass the buck to taxpayers.

At this point some readers may object that I'm painting too dark a picture. After all, most Americans too young to receive Medicare do have private health insurance. So does the free market work better than I've suggested? No: to the extent that we do have a working system of private health insurance, it's the result of huge though hidden subsidies.

Private health insurance in America comes almost entirely in the form of employment-based coverage: insurance provided by corporations as part of their pay packages. The key to this coverage is the fact that compensation in the form of health benefits, as opposed to wages, isn't taxed. One recent study suggests that this tax subsidy may be as large as $190 billion per year. And even with this subsidy, employment-based coverage is in rapid decline.

I'm not an opponent of markets. On the contrary, I've spent a lot of my career defending their virtues. But the fact is that the free market doesn't work for health insurance, and never did. All we ever had was a patchwork, semiprivate system supported by large government subsidies.

That system is now failing. And a rigid belief that markets are always superior to government programs - a belief that ignores basic economics as well as experience - stands in the way of rational thinking about what should replace it.

dcpi - I should add that in addition to being car-free by choice, I am health-insurance-free by choice. Why should I worry about it? I have a few assets of my own. When they run out, there are plenty of people whom I've helped out in the past. I have every confidence that they will help me out if I need it.

Religion is usually framed on this blog in terms of its utility for health or happiness. But... there are some words of Jesus that neither Christians nor economists pay much attention to: "Use your money to make friends. Then, when your own possesions fail you, they will take you in to their houses."

Bob -- I respect your philosophy. Much better to rely on friends than strangers for care. BTW: I also am without a car, by choice, it is much too expensive compared to the benefit for those of us in NYC.

"Why should I worry about it? I have a few assets of my own. When they run out, there are plenty of people whom I've helped out in the past. I have every confidence that they will help me out if I need it."

As a 26 year old I saw my parents doing this to me. I've since purchased long term care coverage for them as a gift - it's cheap being my parents are still under 60. I know that isn't exactly health care coverage and what's being discussed here. But people should be able to plan and take care of themselves. I see people not much more then 15-20 years older then me shelling out big bucks for parental care. It's crazy what an economic burden somebody can place on somebody else. I hope you make your family aware of your decission to be dependent upon them. Me...I fully anticipate not having to depend on the government for anything. Granted I can't control whether or not my own insurance goes bankrupt or not but I can sure try. The wealthy will still be able to afford government gap insurance and recieve better services. The weatlhy doctors will focus on serving those individuals.

The comment about police. That is a necessity it would be anarchy if everybody carried out their own form of justice. In a free society most people should be able to look after there own health. Bad health isn't caused by outside forces there isn't anything to be protected from. It's a part of life, like eating, having a roof over your head, working, and everything else.

If you can't take care of yourself the government or other people foot the bill anyways. Why make it more acceptable

[quote]But in the real insurance market, a company that offered such a policy to anyone who wanted it would lose money hand over fist. Healthy people, who don't expect to face high medical bills, would go elsewhere, or go without insurance. Meanwhile, those who bought the policy would be a self-selected group of people likely to have high medical costs. And if the company responded to this selection bias by charging a higher price for insurance, it would drive away even more healthy people.[/quote]

Interesting. Mr. Krugman has effectively provided the exact reason as to why government should not be providing insurance of any kind. It seems that government provides insurance that any insurance company knows would run them out of business: health insurance for all citizens regardless of health status, flood insurance and tornado insurance, farm insurance to guard against drought, and social insurance to guard against economic downturns. These types of insurance encourage risky behavior, overconsumption, fraud, and abuse. These tend to make insurance more expensive than it otherwise would be. The problem with government providing these insurance plans are that when the perverse behaviors are carried out, the costs are borne by the taxpayer, not the shareholder of a large corporation, and in the long run this lowers standards of living for all citizens.

[quote]I'm not an opponent of markets. On the contrary, I've spent a lot of my career defending their virtues. But the fact is that the free market doesn't work for health insurance, and never did. All we ever had was a patchwork, semiprivate system supported by large government subsidies.[/quote]

Hmm, I wonder how the sick and ill got treated prior to when America's employers decided to provide health insurance as a benefit to avoid paying taxes?

Excellent idea, this compulsory health insurance. Also, along the same lines, since health care is govt regulated, all citizens must maintain their health with proper levels of diet and exercise. Body weight guidelines are now compulsory. Smoking and alcolhol consumption are no longer allowed. This is compulsory. Money wasted on these vises can be applied to health care. You may complain, after all it is a free country, but we will remove your ability to make a living. Freedom is not free.

Blogging software: Powered by Movable Type 4.2.1.
Pictures courtesy of the authors.
All opinions expressed on EconLog reflect those of the author or individual commenters, and do
not necessarily represent the views or positions of the Library of
Economics and Liberty (Econlib) website or its owner, Liberty Fund,
Inc.

The cuneiform inscription in the Liberty Fund logo is the
earliest-known written appearance of the word
"freedom" (amagi), or "liberty." It
is taken from a clay document written about 2300 B.C. in the Sumerian city-state of Lagash.